Friday, February 20, 2015

A Corny Conflicts Title, A Not-So-Sweet Disqualification


We covered the preliminary ruling late last year, which now has been updated: "Law firm Squire Patton Boggs removed from corn syrup lawsuit after merger" --
  • "A U.S. judge has disqualified newly-merged law firm Squire Patton Boggs from representing a group of U.S. sugar companies suing corn syrup producers for false advertising, saying it had a conflict because of work done by one of the legacy firms for two of the defendants in the case."
  • "U.S. District Judge Consuelo Marshall in Los Angeles in an order Friday wrote that "no alternative short of disqualification will suffice" over Patton Boggs' work for clients Tate & Lyle and Ingredion Inc before its 2014 merger with Squire Sanders."
  • "The judge noted the hardships the disqualification would cause for the sugar companies and their trade groups, including Sugar Association Inc, American Sugar Refining Inc, Western Sugar Cooperative and C&H Sugar Co."
  • "The ruling gives a glimpse into the types of conflicts created by law firm mergers and by lawyers moving from firm to firm and the complications that can arise."
  • "The conflict was only identified after the deal closed when Tate & Lyle brought the lawsuit and Patton Boggs' previous work for it to the merged firm's attention, according to the ruling. The ruling means the sugar companies will be without lawyers who had already put in 20,000 hours on the case and racked up $12 million in legal fees."
Update: See also detail and commentary about the use (and invalidation) of an advanced wavier in this case, via the Legal Ethics Forum: "One of the two clients had a broad conflict waiver in its retainer agreement with Patton but the court refused to enforce it. This has happened before. Comments to Rule 1.7 and the Restatement recognize broad prospective waivers by sophisticated clients. But judges - not so much. This one was too broad for the judge."

Thursday, February 19, 2015

Event: San Francisco Risk Roundtable


We're pleased to announce our upcoming Risk Roundtable set for San Francisco on Wednesday, March 11th at the office of Orrick, Herrington & Sutcliffe LLP.
 
Measure Twice, Cut Once: Improving the ROI in your COI (conflicts of interest) / business acceptance process
 
Evaluating new business becomes more and more challenging as firms grow. Client demands are changing and regulatory pressures continue to increase. Effective acceptance processes that deliver quick results and improve management visibility and control is critical to firm operations (and financial performance).
 
This session will discuss how firms are impacted by and responding to these new changes – and how they’re leveraging people, process and technology to deliver new value to their lawyers and clients. 
  • Mike Williams, Information Services Manager at Robins Kaplan LLP, will discuss his firm’s initiative to enhance its new business acceptance process.
  • Industry expert, Meg Block, SVP Risk Management Consulting at Intapp, will provide an overview of trends and considerations facing firms looking to modernize their own practices, and share examples of different approaches organizations can take to execute these projects.
We’ll also have a short demonstration of Intapp Open (including some important new features).
And, as always, we’ll have plenty of time for open discussion, peer exchange and networking.

Attendance is by invitation only and is limited to qualified law firms and personnel. Please contact info@riskroundtable.com for more details.

Wednesday, February 18, 2015

Event: Legal Malpractice and Risk Management Conference (LMRM)

The 14th Annual Legal Malpractice & Risk Management Conference which will be held February 25–27, 2015 in Chicago. The LMRM Conference will again offer interactive panels led by leaders in their fields, who are professional liability practitioners, law firm general counsel and insurance professionals. Each panel will provide a comprehensive examination of current developments with an emphasis on recent legal decisions.

Intapp's Pat Archbold will be presenting a breakfast briefing: "Impacting the Bottom Line with an Improved Business Inception Process"
  • Is your firm taking on clients and matters that are bad for the bottom line? In today’s fast paced environment, where lawyers are eager to start work even before conflicts checks complete, the prospect of adding additional checks to the business inception process may sound quixotic.
  • But today the ability for firms to leverage new technology and automatically integrate richer, real-time business data into the process offers new promise – faster response times for lawyers, shorter conflicts reports, and greater opportunity for management to make strategic decisions before it’s too late.
  • Hinshaw and Intapp have partnered to deliver tools that help firms not only manage ethical and regulatory risk but financial risk as well. Hear how Hinshaw and various other firms are leveraging these tools to improve the bottom line.

Tuesday, February 17, 2015

Clients Eye Security "Weak Link" – Their Law Firms



The Recorder takes another look at growing client concern over law firm information security and confidentiality management: "Clients Eye Law Firms as Security Weak Link" --
  • "Law firm leaders should be bracing for some tough conversations about data security. Alarmed by a series of stunning corporate breaches, companies are getting serious about shoring up their security—and are starting to focus on the outside legal advisers privy to some of their most sensitive corporate secrets. 'I tell anyone who will listen, 'As soon as I finish talking, run—don't walk—and call your IT director and make sure that your law firms have top of the line cybersecurity,' said FireEye Inc. general counsel Alexa King."
  • "Law firms are seen as the proverbial weak link, lacking the IT infrastructure of, say, major banks and retailers yet often holding their confidential financial data along with sensitive personnel or medical records. Some of that data is sent over unsecured networks and to personal devices."
  • "Adobe Systems Inc. associate general counsel Lisa Konie said companies are slowly waking up to that risk. 'It's going to take somebody getting burned, and then everybody is going to try to get in on it.'  [S]he and her team are trying to include data protection standards within its guidelines for working with firms."
  • "Kevin Clem, managing director of the law practice consulting group at HBR Consulting LLC said he's hearing from clients concerned about outside-counsel vulnerability, and said some clients are pressing for security assurances when they seek bids for legal work."
  • "Morgan Lewis partner W. Reece Hirsch said his practice has dealt with demands for data protection for more than a year now, but that is also because he represents clients in the health care industry. As of September 2013, all business associates to HIPAA-regulated industries became subject to HIPAA regulations themselves. Part of that includes a standard data security rule about how the data is stored and kept private. 'Law firms, frankly, haven't had their feet held up to the fire,' Hirsch said. 'In most cases their clients have confidence that the law firm is handling data security appropriately.'"
  • Firms may be starting to listen, said Patrick Archbold, vice president of risk management at legal software company Intapp Inc., if only because they don't want to lose business. 'Lawyers hate change, and they think they can lawyer their way out of anything,' he said. 'The only thing that really motivates them is clients, and that's finally happening.'"

Wednesday, February 11, 2015

Risk Grab Bag (Clients, Conflicts, Currency and the Cloud in Canada Cancelled?)


Several interesting updates to share. First, on the economic risk front: "Managing the Risks of Investing in Clients" --
  • "Clients are looking for ways to pay attorneys with something other than cash. Attorneys are looking to move away from the standard billable hour toward fee arrangements that allow them to participate in the success of projects they help make happen."
  • "The most significant limitation for attorneys investing in clients is whether the transaction is fair and reasonable—from the perspective of the client. Bar associations and courts are especially sensitive to whether an attorney is unfairly trading off of the attorney's knowledge of client confidences or secrets, or otherwise leveraging the relationship to gain an unfair advantage."
  • "One failsafe protecting clients from unreasonable terms is the opportunity to consult with independent counsel. Independent counsel operating with no interest in the transaction allows the client to benefit from professional judgment free from conflict."
  • "Some investments can change the nature of the relationship of the attorney and the client to law practice. Depending on the investment, attorneys may become a client of the firm, in addition to their other role with the practice. Such changes implicate a myriad of issues including the evaluation of potential conflicts of interest for both existing and prospective clients. As a result, in order to detect and resolve these potential issues, it is important to change the law practice's client intake procedures to include any information now relevant because of the transaction."
Next, on how close a relationship must be to trigger conflicts: "Louisiana Supreme Court concludes that 'of counsel' lawyers are associated with that law firm for conflicts of interest analysis" --
  • "...the recent Louisiana Supreme Court which concluded that “of counsel” lawyers are associated with that law firm for purposes of potential conflicts of interest analysis. The case is In re Randy J. Fuerst, No. 2014-B-0647 (La. SC 12/9/14). The Court’s opinion is here: https://www.ladb.org/DR/?"
  • "Bottom line: According to this Louisiana disciplinary opinion, a lawyer who is “of counsel” to a law firm is considered to be a member of that law firm for purposes of conflict of interest analysis; therefore, a lawyer who has a conflict of interest and must withdraw from representing a client cannot refer that client to a law firm in which he has an “of counsel” relationship since this conflict is imputed to the law firm and all of its lawyers."
Finally, turning to the Great White North: "Did the LSBC Just Kill Cloud Computing for Lawyers in BC?" --
  • "...the Law Society of British Columbia (LSBC) President, Jan Lindsay, boldly pronounced that, in no uncertain terms, BC lawyers are prohibited from using US-based cloud computing providers."
  • "...from the back of the room, an attendee stood up and stated (roughly, to paraphrase): 'I am Jan Lindsay, President of the Law Society of BC. This is black and white: BC lawyers are prohibited from using non-BC-based cloud computing providers, including Google and Dropbox... It is a new ruling as of October 31st."
However, take heart, if you parse the spirited comments in that discussion, and proceed to track down the LSBC president's blog, you'll find the retraction: " I don’t believe I said that non-BC cloud computing services were not permitted, but if I did I was wrong."

Tuesday, February 10, 2015

Conflicts Round Up


Let's start with something about a law firm merger making a bit of news these days: "East meets West: Dentons-Dacheng merger raises host of questions" --
  • "The creation of the world’s largest law firm stands to smooth the path for new Chinese investments into Canadian finance and agriculture, even as it raises questions about how well China’s legal establishment can mesh with western practices."
  • "For all the potential benefits of combining forces with Chinese lawyers, western law firms have been hesitant out of fears that doing so could expose them to Foreign Corrupt Practices Act violations, potential troubles with cyber-security or vexing cultural questions. Among them can be a laxer attitude toward conflict of interest at Chinese law firms and different compensation practices. Many Chinese lawyers are paid a fixed percentage of their individual gross billings and maintain their own secretaries and support staff. 'It’s what we would call a hotel for lawyers,'"
And then move to a complex analysis of potential conflicts and a "web of relationships," getting some public attention: "Casino sitting ripe with potential conflicts" --
  • "When a Chicago law firm ended its 11/2-year relationship with a partner in the Lago Resort & Casino project last March, it had another big client waiting in the wings... Taft, Stettinius & Hollister LLP, which merged with law firm Shefsky & Froelich last year, became the state board's lead gambling consultant under a one-year, $4.9 million contract."
  • "In December, the board recommended Lago's site, in Tyre, Seneca County, for a commercial casino license. Montreign Resort Casino and Rivers Casino & Resort at Mohawk Harbor also got recommendations. Key officials involved in all three projects had previously used the Taft firm in their businesses."
  • "These potential conflicts of interest were disclosed to the Gaming Facility Location Board in applications submitted last summer, yet the board continued to use the firm as its gambling-services consultant. The board contends that the past associations between the selected bidders and Taft had no bearing on its recommendations."
  • "Of the 16 casino bids evaluated, five, including the three winning bidders, identified dealings with the Taft firm as a potential conflict of interest in their applications. Two of those five bidders — Hudson Valley Casino & Resort in Newburgh, Orange County, and Live! Hotel & Casino New York in South Blooming Grove, Orange County — were not recommended for a license. The board decided not to recommend an Orange County bidder."
Finally, see: "Even in the Ninth Circuit, courts should not intervene mid-arbitration" --
  • "In Sussex v. U.S. Dist. Ct. for D. Nevada, __ F.3d __, 2015 WL 327558 (9th Cir. Jan. 27, 2015), the underlying issue was whether the arbitrator had a disqualifying conflict of interest.  A single arbitrator was hearing three similar actions by condominium owners against the developer.  During the course of his service, the arbitrator founded a company to invest in 'high-value, high-probability legal claims.' The arbitrator did not disclose that investment activity, but the developer discovered it and moved the AAA to disqualify the arbitrator.  The AAA denied the developer’s request after the arbitrator said his investment company was 'dormant.'"
  • "On appeal, the Ninth Circuit issued a writ of mandamus, instructing the district court to vacate its disqualification of the arbitrator.  It noted that no court after Aerojet had approved of a mid-arbitration intervention and that a majority of circuit courts 'expressly preclude' such intervention."

Monday, February 9, 2015

>Seriously< Swift and Speedy Screening Seems Suitable


From the excellent Lawyer Disqualification Blog comes: "A Timely Reminder of the Importance of Timely Screening" [Signature MD, Inc. v. MDVIP, Inc. (C.D. Cal. Jan. 20, 2015).] --
  • "Duane Morris was recently reminded of the importance of erecting screens in a timely fashion.  From 2008 to 2012, Lawyers in Duane Morris’s Philadelphia office represented MDVIP, reportedly the largest medical concierge membership program."
  • "Then last year, Duane Morris, on behalf of another medical concierge service, brought suit against 'MDVIP for antitrust violations contending MDVIP has abused its dominance in the relevant markets by utilizing anti-competitive tactics and entering into anti-competitive agreements intended to unlawfully maintain and expand MDVIP’s monopolies and to preclude . . . others from competing against it.'  The court found that these two matters were 'substantially related'"
  • "Having recognized the former client conflict, the court then examined “whether the implementation of an ethical screen would be sufficient... The court was able to duck the ultimate question (namely, whether to bless the practice of screening as sufficient to avoid disqualification) because the firm had failed the “timeliness element in implementing an ethical screen..."
  • "The court concluded that the firm had instead implemented the screen 'two days after the [Duane] Morris firm was retained by' its current client.  Although the court acknowledged that a two-day lapse was 'very short,' the court nevertheless disqualified the firm."
Two days. Is your firm ready and able to meet that standard? (Some can...)

Thursday, February 5, 2015

Disqualifications Decided and Deconstructed



Two interesting stories to share. First: "Mayer Brown Tested (and Ultimately Failed) the Limits of Implied Waiver" [Decision] --
  • "Mayer Brown was disqualified from representing Defendant HSBC Finance Corporation in the District of Minnesota.  Mayer Brown had previously represented the Plaintiff Residential Funding Company (RFC), and the district court was quick to find a former client conflict:
  • "'RFC presented extensive evidence that the matters on which Mayer Brown previously represented RFC were substantially related to the instant litigation and, as a result, Mayer Brown was precluded from representing HSBC against RFC, absent its consent or waiver of its right to seek disqualification... the only basis for Mayer Brown’s opposition to the motion to disqualify is that by waiting six months to bring this motion, RFC waived its right seek disqualification.'"
  • "Here, Mayer Brown argued that RFC knew about the conflicted representation for six months before RFC moved to disqualify the firm (and to Mayer Brown’s credit, several courts have concluded that a delay of six months, or even less, forfeits the disqualification remedy).  The problem, though, is that the district court disagreed with Mayer Brown that RFC had known about the conflicted representation for six months. Mayer Brown premised the knowledge argument on a casual voicemail that its lead partner had left for RFC’s counsel."
  • 'RFC’s counsel, however, was later able to retrieve the actual voicemail for the court, and the court found the voicemail much more 'ambiguous' than the affidavit had indicated."
"Appellate Panel Rules Against Attorney Disqualification Twice" --
  • "In a case last month, a unanimous panel upheld a ruling that Kilpatrick Townsend & Stockton should not be disqualified from representing a nominal defendant in, Stilwell Value Partners v. Cavanaugh, 6530112011."
  • "And last week, another unanimous panel, interpreting what defines "substantial harm" to a prospective client when determining if an attorney should be removed, reversed a Commercial Division ruling that disqualified an attorney based on Rule 1.18, which was added to the Rules of Professional Conduct (22 NYCRR 1200.0) in 2009. That case is Mayers v. Stone Castle Partners, 650410/2013."
    "In an unsigned opinion Dec. 30, the appellate court said that a minority shareholder failed to show a conflict of interest existed in Kilpatrick representing directors who sit on the boards of a mutual holding company and the publicly traded company that owns a bank and in which the mutual holding company is the majority shareholder."
  • "Stilwell asserted that there was an inherent conflict of interest in Kilpatrick representing the defendant directors, majority shareholder MHC and NECB, a nominal defendant on behalf of which the shareholder derivative action was brought. However, Jonathan E. Polonsky, a partner at Kilpatrick, at the hearing said the motion to disqualify was a defense tactic to require two firms to staff the case and increase the pressure on the defendants to settle the shareholder derivative lawsuit because of deepening costs."
  • "At the hearing, Ramos agreed the motion was a tactical move when he learned that Neupert had engaged in settlement discussions with the supposedly conflicted Kilpatrick. 'If you’re going to take the position that the conflict crystalized when I denied the motion to dismiss, at that point, I would have a great deal of respect for a motion made to disqualify counsel,' Ramos said at the hearing last year. 'If you’re going to be consistent, you wouldn’t speak to them because they would be conflicted. You wouldn’t talk settlement. The only thing you would do is demand they obtain separate counsel.'"
  • "Ultimately, Ramos found that Stilwell waived the conflict."

Wednesday, February 4, 2015

It's the Engagement Letter (Something)!



Gracing the pages of the esteemed "The Lawyer" magazine, Eddie Reich, US General Counsel at Dentons shines the lime light on an important issue: "Engagement letters: so simple even a child could understand" --
  • "I appreciate that some of the issues discussed in these Risk Tips can be rather complicated. Take engagement letters, for example. Advice like ‘send an engagement letter’ can be difficult to comprehend. And admonitions to ‘carefully review outside counsel terms’ can really tax the brain. After all, not everyone immerses themselves in intensive study of professional responsibility esoterica."
  • "So I’ve enlisted a couple of old friends to help communicate best practice with regard to engagement letters in a simple way. Please study these carefully..."
Linked in the update is a PDF featuring two colorful cartoon buddies named Goofus and Gallant. One of whom "swipes an apple from his client's conference room; it's the only thing of value he can get from his client since it refuses to pay its bills, claiming that it never requested the legal services provided."

This brings to mind another recent update from another gentleman who has worn the law firm general counsel hat and now colorfully blogs under the banner Lawyering for Lawyers, Steve Crislip at Jackson Kelly: "Sometimes Clients Will Just Not Pay You" --
  • "Any engagement letter should address in writing the right to withdraw if not paid and the requirement for the client to make timely payments of bills.  You are urged to discuss any withdrawal procedures with them and to give proper notice, under applicable rules, before withdrawing.  Lawyers should not be reluctant to withdraw when not paid either.  It is important to do that well before any critical deadlines and to advise the client upon withdrawal of all such deadlines in writing.  Otherwise, courts may not let you out because it would amount to abandonment, or the client will claim they did not know of the deadlines.  The point is that lawyers need to be better business managers of their work done."
  • "In an extreme example, recently the firm of Morgan Lewis & Beckins was finally allowed to withdraw 30 years after it was fired by the client. The Third Circuit would not grant the motion to withdraw until the client could retain substitute counsel, which did not happen.  Finally, a three-judge panel upheld the Eastern District of Pennsylvania’s decision to let them out as counsel. It makes the point that there are some clients you do not deserve to represent."
(If only there were some new class of business acceptance software that could help automate and streamline the process of creating engagement letters and tracking internal compliance... Now that would be something...)

Tuesday, February 3, 2015

Economic Harm – An Emerging Class of Conflict?


 
Coming off our recent note about subject matter and other types of conflicts making news, the Legal Ethics Forum calls out a fascinating decision: "Economic Harm as Direct Adversity Under 1.7(a)" [Celgard, LLC v. LG Chem, Ltd., Case Nos. 14-1675, -1733, -1806 (Fed. Cir., Dec. 10, 2014) (Dyk, J.).] --
  • "Jones Day represented the plaintiff in a matter where success would be economically harmful to non-client Apple, which was a customer of defendant. Apple was a Jones Day client on unrelated matters. It intervened to disqualify Jones Day on the ground that the representation was directly adverse to Apple because success against defendant would cause Apple to lose defendant as its lithium battery supplier."
  • "The court disqualified. Jones Day argued that it would not be possible for a law firm to anticipate the economic consequences to a non-party client who happened to be in an opponent's supply chain. But the court held that here the retainer agreement with plaintiff expressly said that the firm would not be adverse to Apple, so Jones Day did in fact recognize Apple's interest."
  • "However, the implications can be disturbing if read even a bit broadly. Many litigations can have economic consequences for a non-party client, even foreseeable ones and here Apple was a client on unrelated matters. The case holds that as a client even on unrelated matters Apple had a right not to see Jones Day appear for another client in a matter in which Apple was not a party because of foreseeable economic harm to Apple."
See some interesting commentary in the comments, as well as additional detail via the National Law Review: "Intellectual Property: Firm Disqualified Because Preliminary Injunction Is “Directly Adverse” to Another Client" --
  • "In determining whether the representation of Celgard amounted to a conflict of interest requiring disqualification, the Federal Circuit applied the professional conduct rules of the forum state. These rules prohibit any representation which is 'directly adverse to another client.'  The Federal Circuit found that the representation of Celgard was 'directly adverse' to the interests of Apple, and [was] not merely adverse in an ‘economic sense.'"
  • "Specifically, the Federal Circuit focused on the effect that Celgard’s preliminary injunction would have on Apple. It noted that the injunction would not only force Apple to find a new battery supplier, but also expose Apple to 'additional targeting by Celgard in an attempt to use the injunction issue as leverage in negotiating a business relationship.'"
  • "Even though Apple was not a named defendant in the litigation, the Federal Circuit found that a conflict existed based on the 'total context' of the case. Furthermore, the Federal Circuit rejected Celgard’s argument that finding a conflict in this case would give lawyers and clients 'no reliable way of determining whether conflicts of interest exist in deciding whether to commence engagements.' Instead, the Federal Circuit held that 'the duty of loyalty protect[ed] Apple from further representation of Celgard.'"